[R-SIG-Finance] PerformanceAnalytics
Brian G. Peterson
br|@n @end|ng |rom br@verock@com
Wed Sep 8 13:45:08 CEST 2021
On Wed, 2021-09-08 at 09:14 +0000, Pankaj K Agarwal via R-SIG-Finance
wrote:
> Dear AllIn the PerformanceAnalytics package, there is a function that
> computes annualized Sharpe Ratios. However, the same is not available
> for computing annualized values of other metrics like Treynor's
> Ratio, Sortiono Ratio etc. Can someone please help?
Pankaj,
The annualization of the Sharpe Ratio relies on the (incorrect) square
root of time estimate for scaling the variance of returns.
The same imprecise scaling estimate is not relevant to the scaling of
different denominators, such as the MAR for the Sortino Ratio, or the
Beta for the Treynor Ratio, or drawdowns for the Calmar Ratio or
Sterling Ratio.
You could argue that simply calculating anual metrics and taking the
ratios would solve the problem, but then you run into the issue of not
enough annual observations to have any trust in the annuallized numbers
(the standard errors would be very wide, because of the small number of
observations).
It probably makes more sense to calculate all of these ratios over the
period of time that you plan to hold the investment, so that you
understand the likely risk during your expected holding period.
Regards,
Brian
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